This month marks six years since councils were given responsibility for designing schemes that help low-income working-age households to pay their council tax, at the same time as central government funding for it was cut. In recently published research, we look at how schemes have changed, and with what effects.
We find that cuts to support, which were substantial when schemes were first localised, have grown considerably since then. Overall, councils’ 2013-14 council tax support (CTS) schemes provided 14% less support to working-age households in England than if the national council tax benefit (CTB) system had been retained at its previous level of generosity; by 2018-19, that figure had reached 24%. These are big cuts: the 3.6 million working-age households who would have been entitled to some CTB receive, on average, £196 less support in 2018-19 as a result of these reforms.
Around half of the additional cuts between 2013 and 2018 arose because councils mirrored central government cuts to national benefits – most importantly, the freeze to most working-age benefit rates since 2015 – which mean households can earn less before their CTS begins to be withdrawn. But overall, the majority of households’ losses arise as a result of minimum payments, which require all working-age households (except any ‘vulnerable groups’ a council might choose to protect) to pay at least a certain fraction of their council tax bill. Significantly, minimum payments imply that even the lowest-income households are required to pay local tax – the first time this has been true since the poll tax.
Minimum payments have been widely adopted – 80% of councils had one in 2018-19 – but different councils have set them at very different levels. Combined with different choices about other aspects of scheme design, this means that otherwise similar households are treated very differently according to where they live. Of the 1.8 million households that would have had their bill fully covered under the old CTB system, half a million – barely one-in-four – still have no bill to pay in 2018-19, but one-in-three have to pay more than £200 per year, and almost one-in-ten have to pay over £300 per year.
These differences in CTS across local authorities allow us to isolate the effects of CTS reforms from other things that might be happening nationally. In effect, we have a six-year experiment in which different areas have had different CTS schemes, so we can compare outcomes across otherwise-similar local authorities with different CTS schemes. Our analysis reveals many of those households required to pay a new bill do not, in fact, pay it. We estimate a quarter of the additional council tax liability created by cuts to CTS is not being collected.
The increase in arrears is driven entirely by households who would not have had to pay anything under the old CTB system, and such households see a similar increase in arrears whether the new bill they face is big or small. In contrast, increasing the size of bills for those who would have had to pay something under the old system anyway has no discernible impact on their likelihood of going into arrears. In both cases it is whether or not a household has a bill to pay at all, rather than the size of the bill, that seems to affect whether they go into arrears.
This non-payment is not only a problem for households, with relatively tough enforcement and penalties for non-payment compared with other household bills. It is also a problem for councils, which presumably reformed their schemes in the hope of raising much-needed additional revenue. A 25% non-collection rate of these additional tax liabilities is 10 times the usual rate for council tax. Since the cuts to council tax support represent only a small fraction of total council tax revenue, this does not have a big impact on the overall council tax collection rate – increasing it from 2.5% to 2.7%. But it does imply that cutting council tax support is of limited effectiveness as a revenue-raising measure.
Furthermore, CTS cuts do not become more effective revenue-raisers after the new system has bedded in: high rates of non-collection are long-lasting. Whether a minimum payment was introduced this year, last year, or five years ago, we still find one quarter of the extra liabilities generated are going uncollected.
The experience so far suggests that councils, grappling with CTS design – and indeed setting council tax rates – while under severe financial strain, might find it easier to raise additional revenue by increasing the size of existing bills than by generating entirely new ones.
Stuart Adam is senior research economist for the IfS and Thomas Pope is research economist for the IfS
